Since the beginning of this month, dry weather in Texas has once again caused market concerns, and ICE US cotton has fluctuated higher. In August, USDA raised the abandonment rate of US cotton to a new high in recent years. On Monday, ICE US cotton reached a strong daily limit, and Zheng cotton followed suit. The main contract once again returned to above 15,000 yuan/ton.
Texas drought continues, seedling conditions worst in recent years
As of August 9, the drought degree and coverage index in the main U.S. cotton-producing areas (92.8%) was 243, a year-on-year increase of 227 and a month-on-month increase of 3. Among them, the drought severity and coverage index in Texas was 380, a year-on-year increase of 371 and a month-on-month increase of 13. Since August, the degree of drought in Texas has significantly intensified. As you can see from the chart below, the degree of drought in Texas this year is second only to the same period in 2011.
Affected by drought weather, the growth rate of U.S. cotton is hovering at a low level. As of August 14, the cotton growth rate in the 15 major growing states in the United States was 34%, an increase of 3 percentage points week-on-week, and a year-on-year decrease of 33 percentage points, 19 percentage points lower than the average of the past five years; 3 percentage points higher than the same period in 2011 percentage points. Among them, the cotton growth rate in Texas was 14%, which was the same week-on-week. As of August 14, the proportion of cotton seedlings with poor growth or above in the 15 major planting states in the United States was 35, an increase of 1 percentage point week-on-week, an increase of 30 percentage points year-on-year, and 18 percentage points higher than the average of the same period in the past five years; compared with 2011 It was 5 percentage points lower during the same period. Among them, the proportion of cotton seedlings with poor quality and above in the Texas area was 50%, an increase of 2 percentage points week-on-week.
Abandonment rate hits record low
USDA’s August supply and demand report shows that due to a sharp increase in the abandonment rate in the southwestern United States, U.S. cotton production in 2022/23 has been reduced by 2.93 million bales month-on-month to 12.57 million bales, the lowest level since 2009/10; U.S. cotton ending stocks are estimated It was reduced by 600,000 bales from last month to 1.8 million bales, a new low.
According to the USDA August supply and demand report, the harvest area of new US cotton crops was reduced from 8.55 million acres last month to 7.13 million acres in August. The abandonment rate increased sharply to 42%, a new high in recent years; the yield was lowered to 846 pounds/acre. , down from the July forecast of 870 pounds per acre.
Judging from the weather and seedling conditions, the abandonment rate of US cotton this year is comparable to or even slightly lower than that of 2011. The abandonment rate given in the US farmers’ report in August was 6 percentage points higher than the final abandonment rate in 2011.
Different fundamentals, strong externally and weak internally
Since 2021/22, the CotlookA cotton price index has increased by about 80%, while the domestic 3128B cotton price index has only increased by about 30% during the same period.
According to the latest USDA report, U.S. cotton ending stocks have been at low levels in the past three years since 2020/2021. In 2021/22, due to the sharp decline in opening stocks, the ending inventory of US cotton only increased by 350,000 bales compared with 2020/21 despite a year-on-year increase in production. In 2022/23, production is expected to drop significantly by nearly 5 million bales year-on-year, causing the ending inventory and the ending inventory-to-consumption ratio to both hit new lows in recent years. The tight supply and demand situation of U.S. cotton has continued from the 2021/22 season to the present and is showing signs of becoming more tense.
Compared with the United States, China’s cotton supply and demand are in a slightly looser balance. According to the latest USDA report, domestic cotton ending stocks have been relatively stable since 2016/17. In 2022/23, opening stocks fell by about 2 million bales year-on-year. After the increase in cotton production estimates was offset by the increase in consumption estimates, the final ending stocks fell slightly by 1.05 million bales year-on-year to 36.21 million bales. So far, the weather in the main domestic cotton-producing areas has been good, and the market expects that cotton production is likely to increase this year.
To sum up, compared with 2011, based on the current weather conditions in Texas and the growth of US cotton seedlings, the abandonment rate of 42% is relatively high, even if the weather in Texas continues to be bad in the later period (unless the drought worsens significantly) Leading to further deterioration of seedling conditions), the space for further reductions in US cotton production is very limited.
Driven by the strong rise in US cotton, domestic Zheng cotton followed suit. However, there is a big difference between domestic supply and demand fundamentals and US cotton supply and demand fundamentals. In addition, due to the weak domestic downstream consumption caused by the Xinjiang cotton incident and the high loan repayment pressure of ginners, the increase in cotton prices is limited. The external strength and internal weakness may continue for some time. . As the launch of new cotton approaches, the bullish support of weather rising water may gradually weaken. The higher seed abandonment rate will benefit US cotton in the short term. In the future, we will continue to pay attention to the weather in Texas and the growth of US cotton.
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